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The timing of low-volatility strategy

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  • Hsu, Ching-Chi
  • Chen, Miao-Ling

Abstract

This study explores the role of investor attention impact on low-volatility strategy. Our evidence suggests that a low-volatility strategy for high investor attention stocks is more profitable than low investor attention stocks. Conditioned on high investor attention, the profitability of a low-volatility strategy significantly increases due to lower returns on higher idiosyncratic volatility stocks. Consistent with recent optimal beliefs theory, investors’ propensity for gambling-type strategies leads to negative returns with high idiosyncratic volatility stocks. Our results provide a behavioral support to explain the low-volatility strategy based on investors’ propensity to gamble.

Suggested Citation

  • Hsu, Ching-Chi & Chen, Miao-Ling, 2017. "The timing of low-volatility strategy," Finance Research Letters, Elsevier, vol. 23(C), pages 114-120.
    • Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:114-120
    DOI: 10.1016/j.frl.2017.05.014
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    More about this item

    Keywords

    Investor attention; Low-volatility strategy; Propensity to gamble;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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